Metals Sector Update - Look Downstream, Converter; Avoid Ferrous: ICICI Securities
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ICICI Securities Report
Our outlook for metal stocks under coverage remains cautious to negative for CY22 – we continue to prefer downstream focused / converter models. Hindalco Industries Ltd. resonates because of its downstream focus and lack of upstream/smelting ambitions and so do APL Apollo Tubes Ltd and Jindal Stainless Ltd. (converter and serving in a niche downstream segment growing at a much faster pace than its steel counterparts).
The current margins, valuations clearly tell a story of caution. Deleveraging as a theme is important but overhyped given cyclicality.
Globally, higher return on equity is not leading to any rerating and we don’t expect Indian steel equities to be an exception. Anti-dumping duties on steel imports have not been renewed at a time when Chinese steel production and exports are expected to increase in Q1 CY22.
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